Offshore and onshore oil and natural gas operators continued to assess their energy infrastructure Tuesday to determine the full extent of damages resulting from Hurricane Gustav, but early reports from the Gulf of Mexico (GOM) were “very promising,” said Lars Herbst, regional director for the Minerals Management Service (MMS).
According to MMS Tuesday, 100% of the GOM’s oil production remained shut in and 95.4% of the natural gas production was shut in. MMS estimates that 1.3 million b/d of oil and 7.4 Bcf/d of natural gas is produced offshore. The production percentages are calculated using information submitted by offshore operators in daily reports. Shut-in production information included in these reports is based on what the operator expected to produce that day, MMS noted. The shut-in production figures are estimates, which the MMS compares to historical production reports to ensure that the estimates follow a logical pattern.
Personnel were evacuated from a total of 632 production platforms, equivalent to 88.2 % of the 717 manned platforms in the GOM, according to MMS data. Personnel from 110 rigs also were evacuated; this is equivalent to 90.9 % of the 121 rigs currently operating.
Gas supply in Louisiana and along the Gulf Coast was down almost 90%, according to an assessment by Bentek Energy LLC. Normal gas flow onshore and offshore from the GOM is around 9 Bcf/d, but it was just 0.9 Bcf Monday, the Golden, CO-based consultant reported. Bentek estimated that total supply loss between Friday and Monday was more than 24 Bcf.
Producers and drillers began flying over their GOM facilities early Tuesday to assess visible damage, and onshore, gas processing and refinery personnel were making their way past flooded areas and downed power lines to their facilities. Some, including Shell Oil Co., Anadarko Petroleum Corp., Apache Corp. and BP plc, planned to redeploy some offshore employees by late Tuesday. However, ramping up oil and gas production was not expected to begin before Wednesday, and a ramp-up to pre-Gustav production levels was unlikely at least before the weekend.
“I don’t anticipate an awful lot of damage,” said Apache Corp. CEO G. Steven Farris. Speaking at the Lehman Brothers CEO Energy/Power Conference, Farris noted that the GOM accounts for 22% of Apache’s total oil and gas production. Apache was planning to begin inspecting its offshore infrastructure Tuesday.
Anadarko completed a fly-over visual inspection from a fixed-wing aircraft of its operated Independence Hub, Marco Polo, Constitution and Neptune platforms in the eastern and central GOM, said spokesman John Christiansen. All of the platforms were “in or near” Gustav’s path, and “all appeared intact, with no visual damage. We expect to begin returning personnel to these facilities [Tuesday] for a more thorough inspection,” he said. Personnel also were scheduled to begin returning to Anadarko’s other operated facilities in the central and western GOM, including Nansen, Boomvang, Gunnison and Red Hawk.
“We expect to resume production as quickly and safely as possible pending successful inspections and availability of pipelines,” Christiansen said.
Based on global positioning systems installed by offshore operators, some of the largest installations that were close to Gustav’s path appeared to be undamaged, including Shell’s Mars platform, which was nearly destroyed by Hurricane Katrina in 2005.
A Federal Energy Regulatory Commission spokesperson told NGI that the agency had not received any requests as of midday Tuesday for relief related to damages to interstate gas pipelines and power transmission lines. If it received requests, FERC planned to deal with them on an individual basis, the spokesperson said.
If the offshore infrastructure escapes with few problems, operators still must be able to transport oil and gas to onshore processing facilities along the Gulf Coast. And with the widespread electricity outages, that could be a problem. Entergy, which provides electricity for parts of East Texas through Louisiana and Mississippi, called the outages from Gustav its second-worst outage after Hurricane Katrina.
A report issued Tuesday by the Energy Information Administration (EIA) indicated that 14 natural gas pipelines in the GOM declared force majeure resulting in complete shut-in of their systems. Eight pipelines posted notices to their shippers informing them of reduced supply from offshore production along with the shutdown of processing plants and compressor stations along their systems. In addition, six pipelines notified their customers of no operational impacts from Gustav.
Twenty-five of 31 major natural gas processing plants in the path of Gustav were shut down, totaling 16.1 Bcf/d, EIA stated.
Sabine Pipe Line LLC, which operates the Henry Hub, said initial assessments of its facility found no serious damage, and it lifted its force majeure at several receipt points. It planned to begin accepting nominations for gas flow beginning at 9 p.m. CDT Tuesday. However, because of the “unavailability of compression” at the complex, the north and south compressor stations were expected to remain off-line until commercial power was restored, it said in a posting.
NGPL, a 9,800-mile system owned by Kinder Morgan Energy Partners (KMP) that transports up to 5.8 Bcf/d, declared a force majeure Tuesday because of complications from Gustav. The pipe was operating at 66% of normal capacity. According to KMP, two compressor stations had no power, but it was hoping for a restart on Wednesday.
Texas Eastern planned to restore its mainline capacity to pre-Gustav levels Tuesday. “Nevertheless, customers are advised that Texas Eastern is operating several Gulf Coast area compression facility locations on emergency backup generators as commercial electric power is unavailable. Until such time as power from the electric grid is restored, Texas Eastern is operating without its standard reserve power…Texas Eastern is restoring capacity as evacuated personnel are able to return and power is made available at critical facilities. At this time no significant damage to Texas Eastern facilities has been discovered; however, investigations are ongoing.”
Gulf South was ramping up to normal rates after suffering “minor damage” and loss of power in the Houma, LA, area. Most of the damage to the pipe came from high winds, and Gulf South was attempting to restore power or provide generator power Tuesday afternoon, a spokesman said. To maintain daily operations and the pipeline’s integrity, Gulf South said the critical period issued on Saturday would remain in effect “for at least” Tuesday’s gas day.
Houston-based Targa Resources Inc.’s Louisiana gas gathering system, which includes 600 miles of gathering system pipelines covering 3,800 square miles in southwestern Louisiana between Lafayette and Lake Charles, was not severely damaged and should be operational to process gas as soon as offshore production platforms and pipelines are operating. Targa’s Venice and Yscloskey, LA, gas processors were swamped during Hurricane Katrina (see Daily GPI, Sept. 12, 2005), and they were shut in for several months. During Gustav, they may have taken on water, said President Joe Bob Perkins. “But how much water and how dirty it is will determine how long it takes to get them back up,” Perkins told the Houston Chronicle.
“If Gustav had been a Category Four hurricane (minimum 131 mph winds), we would have expected losses on the nature of $25 billion-plus,” said Tom Larsen, senior vice president of EQECAT. The Oakland, CA-based risk modeling firm said that based on current assessment reports of damage and additional post-landfall data, estimated onshore insured losses will range from $3 billion to $7 billion — down from its estimate Monday of losses ranging from $6 billion to $10 billion. Its estimate of damage and disruption related to oil and gas production offshore was unchanged, however.
“We are reviewing additional information from energy companies and other sources but continue to anticipate shut-in production for the next year will not exceed about 5% of the production capacity for crude oil and 5% of production capacity for natural gas,” said Larsen. “The offshore estimates exclude any potential damage to onshore refineries, which we also will assess in coming days as information becomes available.”
Oil and gas output lost in the GOM was estimated at about 25 million bbl of oil and 200 Bcf of gas, according to EQECAT. “These figures are an integration of the expected initial loss in production due to damage plus the expected ramp-up in production as damage is repaired, over the next 12 months.” Monetized at current prices ($115/bbl oil, $7.5/Mcf gas) produces a “loss” figure exceeding $4 billion. “Insurance contracts do not necessarily cover all (or any) lost production, and when they do they may not cover it at this price, so insured losses are expected to be a fraction of this figure.”
By Tuesday afternoon “there will be a better chance to understand which platforms might be damaged and when full operations will be achieved,” said Lehman Brothers energy analyst Daniel Guertin. Natural gas transmission infrastructure appears to have been affected by Gustav, he said, noting that the Henry Hub in Erath, LA, was shut in on Sunday. In addition, El Paso Corp. said Monday that flow interruptions had grown from 0.6 Bcf/d to 2.5 Bcf/d. Gas flows into Williams Co.’s Transcontinental pipeline system, which transports gas to the Northeast, had dropped by 1.5 Bcf/d late Sunday.
“Of the 13.2 Bcf/d in gas processing capacity along the Gulf Coast, 8 Bcf/d are located in coastal Louisiana parishes, much of which was damaged by Katrina in 2005, thereby exacerbating the ramifications of the storm for months afterward,” noted Guertin. “Although a significant amount of processing capacity has been forced off-line due to evacuations ahead of Gustav, this does not seem to be compounding supply reductions significantly because much of the gas that feeds into that system has already been shut in.”
Gustav also forced the shut down of Entergy’s 1.15 GW Waterford nuclear reactor west of New Orleans, noted the Lehman analyst. “Regulations dictate a shutdown ahead of expected hurricane-force winds, prompting Entergy to begin a controlled shutdown on Sunday night. The Waterford complex contains two gas-fired units, bringing the station’s total capacity to 1.96 GW. Entergy’s 967 MW River Bend reactor near Baton Rouge is expected to avoid the brunt of the storm and remain operational while monitoring the weather.”
Although the Gulf Coast energy infrastructure may be able to heave a collective sigh of relief, the same cannot be said for the hurricane watchers. Tropical Storm Hanna was soaking the Bahamas Tuesday and appeared to be heading toward the East Coast for landfall in Florida or the Carolinas later this week, the National Hurricane Center reported. Two more tropical storms also were on the radar: Tropical Storm Ike, which formed Monday, is forecast to cross into the Caribbean as a hurricane this weekend. Tropical Storm Josephine formed early Tuesday near the African coast and was heading west.
Meanwhile, President Bush said Gustav’s impact underscored the need to expand U.S. energy production.
“There are some encouraging signs” that Gustav’s impact was not as severe as Katrina, Bush said during a Cabinet meeting Tuesday. However, storms in the GOM underscore the need to open up more offshore areas to drilling, he said.
“When Congress comes back [from a scheduled break], they’ve got to understand that we need more domestic energy, not less,” said the president. “One place to find it is offshore America.” Bush said he would rather have “American consumers…buying gasoline produced from American oil than from foreign oil. I’d rather our dollar stay at home than go overseas.”
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